Lenovo, Winner, Top Treasury Team 2017

This is a true team effort under the leadership of the Global Treasurer with responsibility for overall treasury management comprising 15 people who run all 60 countries centrally. The team has had to respond to the company repositioning itself from a PC seller to a multi-faceted international technology giant. With over 200 entities covering four regions and approximately 70 banking partners with more than 800 accounts, this is no mean feat. Working capital financing, capital markets, FX and SSC operations have all contributed to this most worthy team achievement.

Lenovo is a global leading Chinese multinational technology company. Lenovo has operations in more than 60 countries with more than 54,000 employees and sells its products in more than 160 countries worldwide.

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Lenovo’s team is deserved winner of Top Treasury Team accolade

The challenges

The current market saturation of the hardware business has challenged Lenovo. The company stands out, having repositioned itself from a personal computer (PC) seller to a multi-faceted international technology giant, keeping itself relevant in the fast-changing environment.

Owing to the size and varied technology businesses, Lenovo has, over time, created a unique global treasury model based out of Singapore to handle the complex operating model across its global footprint. It is a Chinese-parented multinational with a true global mind-set and work ethos.

Damian Glendinning, Global Treasurer is chief architect of Lenovo’s treasury. He says, “Lenovo takes pride in having an international treasury outlook which has helped the company in being razor-focused as well as evolving with the changing business and economic environment. Our model in many ways is different from other developed or Asian corporate treasury models. We have a lean global treasury team, which is responsible for overall treasury management comprising 15 people which run all 60 countries centrally. There are only two people outside Singapore in North and Latin America markets supporting them locally on account of regulatory and market constraints.”

To give some perspective, Glendinning leads the group’s global effort on treasury covering working capital, capital markets, cash management and FX operations, among others. Lenovo’s treasury is responsible for managing US$3bn of cash, US$3bn debt and US$3.5bn in working capital. Lenovo has annual flows of US$80bn and more than 2,000,000 payments and collections (including FX settlements) to support a global top line of US$43bn.

The lean treasury team at Lenovo

Global treasury operations are responsible for the overall group’s management of banking operations across the 200+ entities covering four regions and about 70 banking partners with more than 800 bank accounts. This group is responsible for liquidity management, cash flow forecasting, supplier payments, collections and bank account management.

Working capital financing operations – (based in Singapore) – led by Sriladda Chalermkarnjana

This is a strategic group and an integral part of Lenovo’s treasury, focussed on working capital finance. The team works closely with commercial teams for order monetisation, counterparty risk mitigation, capacity creation with distribution network by early cash-in and other bespoke solutions. This team also works cohesively with supplier side teams on opportunities for cost as well as payment terms management with their global supply chain.

Working on the capital structure and continuously looking for opportunities to refine the debt mix is a key priority. The team manages a debt book of US$3-4bn and taps various kinds of market instrument for financing the core funding requirements of the group. This year to date Lenovo has tapped the capital markets for US$500m of long-term senior debt and US$1bn of perpetual debt securities.

FX operations – (based in Singapore) – led by Joseph Chua

This group manages the overall currency and interest rate exposures. Given the global scale, there are numerous currency pairs involved in Lenovo’s business operations with varying regulatory regimes. The basket of currencies ranges from G3 to emerging markets as well as exotic pairs in Latin American and Africa, thus this team runs ‘round-the-clock’ to manage currency volatility risks and implement a consistent hedging programme for all its exposures. The monthly turnover for its currency hedging programme exceeds US$6bn.

SSC operations

Timely execution and robust controls require strong operations teams. Lenovo’s shared services centre is a crucial base on which the treasury structure is built. It oversees the group’s global payment processes as well as collections and reconciliations.

In the past two years, Lenovo has doubled its efforts to pivot the company to manage market headwinds and re-position itself beyond PC into servers, cloud, mobility and software. While PC remains core and Lenovo continues to be a market leader, due to overcrowding as well as market size contraction, pressure has been put on margins. In order to support and complement its organisational mandate, Lenovo’s global treasury embarked on a transformational journey to redefine its priorities, platform and productivity.

In the last 18 months, they have swiftly built a scalable treasury infrastructure capable of delivering value and efficiency. Lenovo has successfully deployed treasury solutions to augment simplicity and efficiencies of its operational processes. A few recent initiatives in liquidity management, working capital management, treasury integration and restructuring, capital structure and debt management have proven extremely effective during the company’s restructuring.

The solutions

Throughout 2016 and 2017, Lenovo’s treasury has undertaken the following projects to align with the group’s overall strategy.

Bespoke global liquidity structures

With operations in more than 60 countries and products selling in 160 markets, a big challenge for Lenovo is to gain instant visibility over its cash flows across the globe. The second challenge is the right deployment of the cash for its most efficient end use, given capital convertibility regulations in each operating market. Over the years, Lenovo has built a strong automated infrastructure for management of liberal currencies through an “against the sun” global sweep structure involving 16 countries and eight currencies. In this phase, they explored and executed bespoke solutions in emerging markets, which are fast-growing and generate sizeable cash. Target solutions like Prestacao in Brazil, automated structured deposits in India and advances for import in Turkey have truly maximised their cash efficiency. They worked to enhance the return on cash by actively managing the global pool header account and deploying long-term cash for debt repayments and short-term cash in liquid money market schemes via an online tool. These structures have helped Lenovo in counterparty risk management, liquidity optimisation and added profit and loss of US$28m of interest income for the US$3bn cash under management.

The group leverages a global re-invoicing centre in Hong Kong which further concentrates external payment flows, thereby improving cash forecasting and offers a predictable investment policy.

Synergies from treasury integration in period of restructuring

Lenovo has been working to restructure its business offering and internal organisation, including corporate spin-off, diversification and ownership reform. In the last 18 months, Lenovo sold off non-core assets across its global footprint and executed Project Giant, to put its server business into separate legal entities, integrate Motorola Mobility and have recently begun ERP migration to Lenovo global ERP (SAP). These changes required restructuring of all treasury touch points from new account opening, setting parallel liquidity structures, payment infrastructure, collections framework, cash flow reporting and many others. Lenovo underwent a vertical and horizontal integration with a sense of urgency, requiring front-to-back re-organisation from policy, process and systems perspectives. An important element of their success was the company’s model of being highly centralised, controlled and using fully digitised execution. A very high percentage of Lenovo’s payments, collections, FX contracts, liquidity and reporting are fully driven through digital channels. The company has implemented solutions such as a payments factory with harmonised file formats and host-to-host connectivity, thus paving the way for an agile treasury model.

Working capital efficiency

As Lenovo continues its global expansion and focus on restructuring, its need for working capital to support its business growth and deleveraging has grown considerably. Lenovo’s working capital management team adopted a targeted approach to focus on both sides of their balance sheet, reducing the sales cycle (DSO) and extending the payments cycle (DPO). These goals required tailored solutions to fund Lenovo’s working capital goals. Key solutions implemented in the last 18 months have resulted in incremental working capital efficiency of US$925m. Measures for DPO extension account for nearly ~US$2.3bn. A letter of credit (LC) based supply chain solution for Lenovo’s largest supplier, Intel, has scaled up to US$800m with Lenovo’s core global banking partner. Open account supplier finance solutions for various Chinese ODMs and component suppliers with a size of US$1bn and for US-based global supplier with a size of US$500m have also been established.

“It is a huge compliment and a fantastic achievement. I am especially pleased because it is for the team, I am very fortunate to have a great team that has been doing fantastic work for a long time and I am incredibly pleased that they are being recognised.”

– Damian Glendinning, Group Treasurer, Lenovo

Several measures for DSO reduction and sales acceleration, including a factoring programme for distributor lead collections through IBM Global Financing (insurance backed structures) have all contributed to the improvements. Additionally, account receivables (AR) factoring amounting to about US$4bn through Lenovo’s global banking partner and other bank and non-bank institutions has increased the benefits achieved.

Lenovo’s treasury team, together with its banking partners, has driven innovation, out-of-the-box solutions and scale. These solutions are cutting-edge and hybrid financing instruments covering a range of trade finance tools deliver the desired outcome for the Lenovo group.

Capital structure and debt management

Lenovo’s team has been able to take advantage of its strong understanding of capital structure analysis and forecasting and an intimate understanding of the capital markets to raise innovative and timely financing over the years. They currently manage a debt book of around US$3-4bn and tap various kinds of market instruments for financing the group’s funding and hedging requirements. In a phased and planned manner, they are restructuring their capital mix. Starting two years ago, Lenovo raised the then largest unrated REG-S bond in Asia with a US$1.5bn offering which opened up the unrated bond market in Asia and soon after resulted in several other Chinese and Asian issuers starting to issue inaugural unrated REG-S bonds. While the CNH market was still relatively quiet, Lenovo issued CNH4bn after a slow period for offshore yuan debt, and was credited for “waking up Hong Kong’s sleepy dim-sum bond market with that year’s largest sale of offshore yuan debt” by the Wall Street Journal and many other market observers. Lenovo’s CNH4bn bond also allowed the company to create a natural hedge against its recurring incoming yuan receipts, thus reducing its overall hedging costs. In 2017, Lenovo issued a US$1bn subordinated perpetual non-call five-year option, resulting in equity treatment for this perpetual from both an accounting and loan covenant perspective. This subordinated perpetual was especially structured to suit Lenovo’s needs by allowing the company to raise funding from high quality and long-term investors, while obtaining equity treatment for this offering and helping in leverage. In parallel, it issued US$500m US fixed rate bonds (senior debt) for five years.

Lenovo’s keen understanding of capital structure, funding requirements and capital markets, coupled with its ability to make quick decisions to take advantage of market conditions, have resulted in successive timely and successful capital market fund raisings.

Best practice and innovation

Lenovo’s team has set a high benchmark in treasury management by transforming their treasury practices and leading the evolution. The team has had a forward-looking approach towards new challenges and embracing emerging digital solutions to build a scalable futuristic platform.

Among some of the key concerns Lenovo’s treasury team had to consider during this strategic relationship management initiative were:

International outlook

Unlike some of their Asian parented MNC peers, Lenovo operates with international outlook and global scale from a centralised hub, which is highly cost efficient and supports strong common governance. Its treasury infrastructure nimbly supports business expansion in new markets with minimal incremental cost and time to build the platform.

Digital engagement

Completely digitised payments through harmonised formats, electronic cash flow forecasting, FX contracting and liquidity management for liberal currencies as well as emerging markets via online tools. This was helpful when spinning out the server business, integrating the mobility business, as plug-in and plug-out was swiftly executed in a highly heterogeneous and regulated environment.

Speed and agility

The Lenovo team initiated several strategic treasury projects covering various facets of their treasury transformation goals and progressed all of them in parallel to a positive conclusion. They demonstrate strong project management skills coupled with the ability to partner multiple internal stakeholders for delivering a differentiated treasury management experience.

Deliver industry first solution

Lenovo has displayed innovation, leadership and has partnered for industry-leading solutions. Its complex business models with different buy/sell models, numerous currencies and market specific terms of trade makes its achievements even more impressive. Its pioneering solutions for DPO extension, capital restructuring as well as liquidity solutions in emerging markets has created efficiency gains as well as cost savings to the company.

P&L ownership and pivot to growth

Lenovo’s team has focussed on value creation for the firm. Their efforts commanded ownership with projects focussed on sales acceleration (distributors as well as institutional) to drive P&L and growth. A similar focus was given to operational excellence to integrate the acquired mobility business; spin-off server business as well as implement a single ERP for the overall group’s treasury requirements.

Metrics driven treasury

Lenovo has set a benchmark for creating sustainable streams of cash flows for deleveraging vis-à-vis its operations by targeting metrics such as DPO, DSO, working capital, consolidated liquidity and operating efficiency goals.

Glendinning concludes, “This journey has created synergies for the overall company including restructuring businesses. This facilitates a model which is scalable and policy compliant.”

All in all, the Lenovo team displays an art of distinctive change management with agility and speed. Their progress over the last 18 months, deploying complex solutions for working capital efficiency has resulted in a net opportunity interest saving of US$60m and added to cash flow of US$2bn. Similarly, its drive for liquidity efficiency has resulted in US$28m of additional savings.